The Bank of Amsterdam and the Limits of Fiat Money

Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global game approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity render fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.

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Publication Details

Journal
Journal of Political Economy
Published
2024-08-05
DOI
https://doi.org/10.1086/732524
Citations
7
Primary Topic
German Economic Analysis & Policies
Type
article
Field-Weighted Citation Impact
5.65
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article

The Bank of Amsterdam and the Limits of Fiat Money

Peter Wierts, Jon Frost, Hyun Song Shin, Wilko Bolt
7 citations
Journal of Political Economy
German Economic Analysis & Policies
5.65
article

The Bank of Amsterdam and the Limits of Fiat Money

Peter Wierts, Jon Frost, Hyun Song Shin, Wilko Bolt
article en
7 citations

Abstract

Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global game approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity render fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.

Journal of Political EconomyVol. 132(12)
Bank for International Settlements (CH), Vrije Universiteit Amsterdam (NL), De Nederlandsche Bank (NL)
Decent work and economic growth
Openalex Percentile: Top 4%
German Economic Analysis & Policies
5.65
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The Bank of Amsterdam and the Limits of Fiat Money — Peter Wierts, Jon Frost, et al. · Journal of Political Economy (2024) | TGRS Research Map | TGRS